Real estate is an essential long-term component of a well-balanced investment portfolio

Mandy Ramsden, Chairman of the Association of Unit Trusts (APUT), comments on National Treasury’s latest document regarding the Real Estate Investment Trust (REIT) proposals

In December last year, the National Treasury released a discussion paper on reforming the listed property industry in South Africa, aimed at bringing it in line with global best practice.

Stakeholders were invited to submit comments on the document to the National Treasury and the department has recently released its response to the submissions received from industry participants and other interested parties.

Mandy Ramsden (Pictured right), Chairman of the Association of Unit Trust Management Companies (APUT), says that, while its proposals are expected to have far reaching consequences for other real estate investment vehicles (and, possibly, their investors), for Property Unit Trusts (PUTs), it’s largely business as usual.

Ramsden recognises the excitement around the introduction of REIT legislation in South Africa, but notes that such legislation has in fact existed since the introduction of the Unit Trust Control Act in 1981 and, since the establishment of the first PUT in 1983, investors have had access to a globally recognised South African REIT.

“It is more an issue of terminology,” says Ramsden.

There is no single, definitive REIT structure and, in fact, there is little consistency across the 54 countries in which some form of REIT exists, aside from one important feature:

It is a real estate investment vehicle that acts as an income conduit and enjoys tax-free status provided that it meets certain pre-determined criteria

In addition, income and capital gains tax are incurred by the investor on the distribution it receives and the gain made on disposal of its participatory interests, respectively.

PUTs have always been taxed in this way and, as a consequence, this will mean that PUTs should be exempt from any conversion tax that the National Treasury may levy on those real estate investment vehicles that choose to enter the REIT regime.

Ramsden identifies a significant development for the PUT industry: the attempt by the National Treasury to bring about amendments to existing legislation that would allow PUTs to facilitate BEE initiatives whilst ensuring adequate investor protection.

Currently, PUTs may not use their balance sheets to support BEE deals.

In this regard, consultation between the National Treasury, the FSB and the Property Charter Council has begun, but until the process is finalised, the structural impediments to the meaningful empowerment of PUTs at ownership level will remain.

The REIT evolution process is a consultative one in which the National Treasury will continue to engage with the real estate industry and its stakeholders and regulators and to gather more information about the industry and to clarify concerns with the proposed regulatory amendments and tax dispensations.

APUT anticipates that implementation will take place towards mid-2010.

“Real estate is an essential long-term component of a well-balanced investment portfolio and, while the various aspects of the National Treasury’s proposals are being clarified, PUTs will continue to offer a simple, transparent, well-regulated and well-understood entry into the listed property sector,” concludes Ramsden.

Article From: www.itinews.co.za